Two-Year Treasury Yield Reaches Seven-Year High, Dollar Turns Up

Chart 1 shows the 2-Year Treasury yield climbing above 1.30% on Thursday, for the first time in seven years. That shorter term yield is more sensitive to the potential for a rate hike than longer-range maturities. That suggests that fixed income traders are taking expectations for a March rate hike by the Fed more seriously. Fed fund futures Wednesday placed the odds for a March hike near 66%. That suggests that bond yields in general are probably headed higher as well. That's also giving a big boost to the U.S. dollar.

Chart 2 shows the U.S. Dollar Index ETF (UUP) climbing to the highest level in six weeks. The dollar is following the 2-Year Treasury yield higher on increased expectations for a March rate hike. Chart-wise, the UUP was due for an upturn anyway. Previous messages showed the UUP having retraced 50% of its August/January rally, which put it in a logical support point. Chart 2 also shows "gap support" formed in mid-November right after the election (see box). One final point. The numerals show that the UUP has been in a "wave four" Elliott wave correction since the start of the year. Uptrends usually have five waves. That makes the 2017 decline a correction in an ongoing uptrend. That increases the odds that a "wave five" advance is starting.

About the author:John Murphy is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor.
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